How Best to Promote Research and Development

Clearly, there is something appealing about a start-up-based innovation strategy: it feels democratic, accessible, and so California. But it is definitely not the only way to boost research and development, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century.

CAMBRIDGE – Start-ups, incubators, accelerators, angel capital, venture capital, mergers and acquisitions, initial public offerings, a liquid stock market, techno-parks, a major university or two, and a group of specialized law firms. Many believe that once you have built up this ecosystem, à la Silicon Valley, you can become the next Route 128 in Massachusetts, the next Research Triangle in North Carolina, or the next Start-Up Israel.

But, while success breeds imitation, the opposite is often not the case. Complex structures with many interdependent pieces are not created out of whole cloth. They emerge from idiosyncratic path-dependent processes, whereby each organizational innovation changes the ecosystem, making other changes feasible. Trying to copy the resulting ecosystem is like trying to build a bridge with no scaffolding: it cannot be done, because the structure cannot bear its own weight while it is being built.

Clearly, there is something appealing about a start-up-based innovation strategy. It feels democratic, accessible, and so California. But it is definitely not the only way to boost R&D, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century. The alternative strategy lies at the opposite end of the distribution of firm size – with big business.

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Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Director of the Center for International Development at Harvard University and a professor of economics at the Harvard Kennedy School.

In most corporations R&D is simply D, and most start-ups cannot fund R. That is why so much is focused on apps that piggyback the internet and try and exploit Metcalfe's Law, that requires relatively light investment compared with the potential returns if the right consumer take-up occurs. The vast majority of R does not yield a return, its the nature of R. It follows that to undertake significant R you need a big corp that dominates its sector, and globalisation weakens market domination. The main characteristic of globalisation is the relocation of existing mature technology to cheap labour cost areas, it may generate increased economic activity and corporate profits but it is not creative, it is more akin to M&A and platform engineering both of which focus on cutting labour costs. It is a great deal easier to undertake labour costs reduction than to create a new technology. The cost of making a significant breakthrough via R rises with the complexity of products already established and the cost to taking to market in a global market. That is almost certainly why productivity is steadily dropping and investment is an issue. A result is a corporate mentality averse to R and an obsession with labour costs.

Because of this AI is one of the main areas of interest for R&D, it boosts labour cost reduction and implementation meets some of Metcalfe and attracts funding. Whether AI will have societal benefits, improve productivity or increase investment levels is highly questionable. The grand design mentality of AI supporters could be compromised in reality. as an example of grand design failure - In the 1930s Le Courbusier came up with the idea of the vertical village, gathering village houses into a vertical stack and offering the released ground all around as a wide open urban green space. What actually happened was the green space was seized and multiple tower blocks were built crammed together only to be demolished a few decades later as unsuitable for human occupation

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